Alibaba steals Yahoo's thunder ahead of IPO

NEW YORK--If Yahoo appears back in favor, it can thank Alibaba, the Chinese Web giant in which it holds a big stake and that is set for a public stock offering.

Yahoo shares soared 6.26 percent to close at US$36.35 Wednesday on the heels of a better-than-expected quarterly report, but some were more focused on the Alibaba financial results buried in the document.

"The salient point of Yahoo's first quarter results was the very strong December quarter results from Alibaba," said Jordan Rohan, analyst at the brokerage Stifel.

"Alibaba's results paint a favorable picture for a favorable IPO despite the recent period of weakness in the Internet sector."

The Chinese firm has not yet released details on its finances, but Yahoo's figures showed Alibaba with a 2013 fourth-quarter profit of US$1.35 billion on some US$3 billion in revenues. That indicates 66-percent growth, up from 51 percent in the past quarter.

The data from Alibaba "gives us decent conviction that the valuation will ultimately be higher than US$200 billion," Rohan said, dwarfing Yahoo's market value of around US$36 billion.

Other analysts say a more realistic value for Alibaba could be in the range of US$130 billion to US$150 billion.

Fresh Life for Yahoo

Yahoo holds a 24-percent stake in Alibaba and under the latest plans is expected to sell about 10 percent of the capital in the Chinese group in the initial public offering.

The U.S. firm bought 40 percent of Alibaba in 2005 for US$1 billion and now stands to reap a handsome profit from that. Yahoo sold part of its stake in 2012, getting a gain of US$7.6 billion.

Collin Gillis, analyst at BCG, said the agreement could make Yahoo the majority seller on the IPO "and potentially reduce Alibaba's incentive to aggressively price the offering."

Gillis said the IPO would give Yahoo a fresh cash infusion, adding: "We expect the cash proceeds to primarily be used to repurchase shares and to pursue acquisitions."

Alibaba is preparing what is expected to be the biggest tech sector IPO since Facebook's in 2012. It comes amid intense activity in the Web sector, but also concerns about excessive valuations.

But the transaction could give new momentum to Yahoo, which has struggled since losing its position as the leading Web search engine but is refocusing under chief executive Marissa Mayer.

Mayer, a former Google executive, said her efforts are showing signs of turning things around.